finance 1 April 2026 Daily Monitor (Uganda)
Loan Buyoffs: Why Borrowers Shouldn't Pay Double Insurance When Switching Banks
Borrowers in Uganda face unfair double payments for credit insurance when transferring loans to new banks with better rates, as the new lender demands fresh coverage despite existing upfront insurance. Experts call for reforms to link insurance to the loan risk itself, not the bank, to promote competition and protect consumers. Source: https://www.monitor.co.ug/uganda/oped/letters/loan-buyoffs-should-borrowers-pay-twice-for-switching-lenders--5410632
A borrower excited about switching to a bank offering three percentage points lower interest rates discovered a catch: the new lender required paying credit insurance again on the outstanding loan balance.
Despite having paid upfront insurance on the original loan, this duplication inflated the total cost, negating the interest savings.
Loan buyoffs aim to give customers better deals and service, but double-charging for insurance undermines this by tying borrowers to poor lenders.
Insurance should cover the risk, not the institution holding the loan, much like car insurance follows the vehicle regardless of the driver.
The proposed fix: centralize credit insurance through a neutral body like a credit reference bureau, so coverage transfers seamlessly with the loan.
This reform would cut unnecessary costs, boost competition, and prevent borrowers from being trapped in subpar banking relationships.
Regulators must push for a consumer-focused, risk-based insurance model to make loan switches truly beneficial.
Source: Daily Monitor (Uganda)